A landmark shift in Australia’s political landscape is prompting rapid recalibration of monetary policy expectations.
Following the Australian Labor Party’s sweeping majority in the House of Representatives, National Australia Bank (NAB) has released a forecast pointing to a significant and swift easing cycle by the Reserve Bank of Australia (RBA).
According to NAB’s latest Economic Update, the central bank could cut interest rates by 100 basis points by August 2025—beginning with a potential 50-point reduction as early as May 20.
This would mark the most substantial monetary easing since the COVID-19 pandemic or Global Financial Crisis, driven by emerging disinflation and rising downside risks in the labour market.
Disinflation and downside risks drive monetary policy rethink
According to Sally Auld, NAB’s group chief economist, recent data suggest that current monetary policy settings are now overly restrictive.
The update highlights that both headline and core inflation fell within the RBA’s 2–3% target band in the first quarter of 2025, particularly noting continued disinflation in the market services component of the Consumer Price Index (CPI) basket.
This softening in inflation aligns with weakening domestic indicators. NAB notes a shift in risk distribution for both economic growth and employment. Its updated forecast cuts GDP growth for 2025 to 2.0% and adjusts peak unemployment expectations from 4.2% to 4.4%.
“There is thus some catch up required to align policy settings with recent developments.” Auld stated.
Historically, the RBA has shown readiness to respond rapidly to international economic headwinds. NAB believes this precedent, along with current inflation conditions, supports a proactive stance.
The easing cycle we’re forecasting “would look very similar to those which responded to the GFC and the COVID-19 pandemic,” the bank said.
Political clarity supports economic confidence
The recent election outcome, delivering a stronger-than-expected majority to the Labor government, is also influencing market sentiment.
According to NAB, the result enhances governmental stability and facilitates policy execution, which could reduce uncertainty in financial markets.
NAB suggests Australia is transitioning away from decades of economic policy anchored in free markets and free trade towards a model featuring greater governmental intervention.
“The government is likely to take the election result as a strong mandate and we would expect that the government’s share of economic activity in Australia will likely increase over the next three years.” the report noted.
Despite concerns over global economic conditions, particularly potential disruptions from U.S. trade policy, NAB believes Australia remains relatively insulated.
Less than 5% of total Australian exports go to the United States, providing a buffer against any direct impact from future tariff escalations.
